A recent report from consulting firm McKinsey & Company found that while global private equity deals and deal values sharply declined in 2023, private equity investments in insurance have soared and are expected to grow at the beginning of 2024. The seven-month period saw an increase of 42% compared to the whole of last year. .
As of the end of July, private equity investments in insurance totaled $27 billion in 2024, compared to $19 billion for all of last year and $21 billion for all of 2022, according to the report. At the current pace, investment deals could surpass the $45 billion in deals in 2021 in the immediate aftermath of the coronavirus pandemic, the highest in at least a decade. Meanwhile, the total value and deal value of global private equity deals fell by 21% and 24%, respectively, in 2023, according to McKinsey.
“However, when it comes to insurance, PE investments are on the rise,” the report said. “Distribution consolidation remains a key theme, especially among brokers, but the areas of property and casualty services, specialty underwriters, and insurance software are all becoming a more central focus for PE investors.”
The report says that despite the impact of higher debt costs due to rising interest rates, insurance distribution is the most resilient sub-segment of overall private equity financial services investment. This is an area that relies heavily on debt financing and mergers and acquisitions.
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The report also said investors are considering the use of artificial intelligence and other technologies to “lower expenses, improve technical performance, reduce loss rates and accelerate growth.” McKinsey estimates that between $50 billion and $70 billion of the insurance industry’s revenue will come from the productivity-enhancing impact of generative artificial intelligence. The report cites a survey conducted by the company in February of more than 50 insurance companies, of which more than half said generative AI has increased productivity by 10% to 20% and reduced insurance premiums. reported that they believe it could increase by 1.5% to 3.0%.
“Gen AI is not a silver bullet, but it has tremendous potential to shape future performance,” the report said, adding, “Some established insurance software companies are already privately owned. But there are still investment opportunities,” he added.
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Tags: AI, artificial intelligence, insurance, M&A, McKinsey, PE, private equity
